AusAID
LOCAL ECONOMIC INFRASTRUCTURE PROGRAM (LEIP)– SRI LANKA
CONCEPT DOCUMENT
September 2, 2011
The Draft Concept Report outlines a proposal for AusAID to establish Local Economic Infrastructure Program (LEIP) in the conflict and flood-affected northern and eastern areas of the Democratic Socialist Republic of Sri Lanka. The document sets out a proposed five-year program (2010-2015) with a total budget of up to A$38.55 million. The program includes support for rehabilitation and construction of new infrastructure, capacity building for infrastructure development and management by public institutions and utilities at district and provincial level, aimed at improving the income and livelihoods of people living in some of the poorest regions of the country. It is proposed that the program be delivered through a partnership with the World Bank. AusAID would transfer funds to a World Bank Trust Fund to support an existing World Bank program operating in the conflict affected parts of the country as well as establishing a catalytic fund to be managed by the Bank for new and innovative infrastructure projects to be jointly agreed between the Bank and AusAID.

TABLE OF CONTENTS

Summary on a page i

1. Introduction 1

2. Context Analysis 1

2.1 Strategic Context 1

2.2 Government of Sri Lanka’s Development Priorities 2

2.3 Australia’s Development Priorities in Sri Lanka 2

2.4 Problem Analysis 2

2.5 Needs Assessment 3

2.6 GoSL Infrastructure Priorities 4

2.7 Lessons learned 4

2.8 Rationale for a proposed economic infrastructure project 5

2.9 Options and Alternatives 5

2.10 Identification of potential partnerships 6

3. Activity description 7

3.1 Overall program framework 7

3.2 Delivery approach 8

3.3 Targeting of assistance and visibility strategy 9

3.4 Allocation of funds and potential to scale up 10

3.5 Anticipated results and Engagement with the GoSL 10

3.6 Socio-Economic Analysis and Sustainability 10

3.7 Management Arrangements 11

3.8 Resource Implications for AusAID 11

3.9 Contribution to MDGs 12

3.10 Links to other AusAID, GoSL and donor activities and programs in Sri Lanka 12

3.12 Risk Analysis and Management 12

3.14 Conclusion 13

References 13

Annexes 15

Acronyms

ADB / Asian Development Bank
AusAID / Australian International Development Agency
CLICAAP / World Bank Community Livelihoods in Conflict Affect Areas Program
CPS / AusAID Country Program Strategy Sri Lanka
DCD / Draft Concept Development
DFID / UK Department for International Development
GoSL / Government of Sri Lanka
LEIP / Local Economic Infrastructure Program
MDG / Millennium Development Goals
NELSIP / World Bank North East Local Service Improvement Project
ODA / Official Development Assistance
SIDA / Swedish International Development Agency
UNDP / United Nations Development Program
WB / World Bank

Summary on a page

The Concept Document outlines a proposal for AusAID to support a Local Economic Infrastructure Program (LEIP) in the conflict and flood-affected northern and eastern areas of the Democratic Socialist Republic of Sri Lanka. While Sri Lanka is a middle-income country, the northern and eastern regions of the country lag significantly behind the development of other regions.

The concept document was prepared following a mission by AusAID to Sri Lanka from the 20-30 June, 2011, which involved meetings with the Post, Government of Sri Lanka, multilateral agencies, NGOs and the private sector. The project would involve approximately A$38.55 million over five years (2011-2015) to support the reconstruction and development of the essential economic infrastructure needed to improve the livelihoods of people in the most impoverished areas of the country. It includes provision of a Catalytic Fund to create opportunities that leverage the resources of the private and public sectors to develop key pieces of rural economic infrastructure.

The LEIP would be an important project for AusAID in Sri Lanka. The program would support the objectives of the Country Strategy for Sri Lanka, to support recovery and rehabilitation of conflict-affected areas, livelihoods and income generation. It also supports achievement of the Millennium Development Goals at the sub-national level, and the National policy objectives for the Government of Sri Lanka as set out in the Mahinda Chintana. The program involves an integrated approach to economic development in rural areas aimed at ensuring sustainability, equity, and value for money.

The Concept Design for the LEIP involves a multilateral partnership with the World Bank in Sri Lanka to support an expansion of the North East Local Services Improvement Project (NELSIP). It also includes the development of a Catalytic Fund to be managed by the World Bank to support innovative finance for local government or private sector partners. The program will involve the delivery of packages of assistance to district/provincial and local area levels. An example of the activities LIEP would support include: (i) restoration of infrastructure, including water supply systems, local roads and community facilities (ii) development of a major regional/district infrastructure project such as an inland inter-modal transport hub, industrial estate or solid and hazardous waste management (iii) land-use, social and infrastructure planning (iv) institutional human resource development and capacity building (v) enhancing the business enabling environment (vi) improving systems for financial planning and revenue collection of local government operations and maintenance support economic development.

The project would be executed under a donor trust fund arrangement with the World Bank. Specific programs of activity that support the Australian Aid Program’s core strategic goals and development objectives will be identified with the Bank and the Government of Sri Lanka. Other modalities to develop and implement the LIEP with multilateral agencies were investigated, but the World Bank project provided the best fit with the AusAID Country Program Strategy, the needs assessment conducted by the Mission and priority areas and activities for aid assistance.

A partnership with the World Bank through NELSIP will result in more effective leveraging of AusAID funds, reduced administrative overhead costs compared with other multilateral agencies and lower political and fiduciary risk. A multilateral partnership with the World Bank also offers opportunities for AusAID to leverage off other World Bank related program activities in Sri Lanka. By targeting of AusAID funds to activities in two or three selected districts, the LEIP will ensure the Australian Aid program maintains a profile and ownership of the programs activities.

The Concept Document includes background material justifying the benefits of the project, an explanation of the design concept, analysis and benefits, sustainability and feasibility of the project.

concept design document for local economic infrastructure (leip)-sri lanka

1. Introduction

AusAID is currently preparing a program of development assistance activities for Sri Lanka to support the implementation of its Country Strategy (CS) which runs from 2011-15. The Agency anticipates that a budget of $5-7 million per year will be available over the life of the Country Strategy, starting in 2011-12, to support a local economic infrastructure program (LEIP) to support the development of lagging regions. At this level of funding, and with current resources, the program is modest compared to national infrastructure requirements and development objectives and the efforts of other large donors[1] such as China, Japan, India, ADB and World Bank. Within this context tight targeting of assistance, partnering with other large development partner(s) and efficient design/ implementation arrangements are necessary.

The concept document was prepared following a mission by AusAID to Sri Lanka from 20-30 June 2011. The Mission consulted with a range of bilateral and NGO partners to identify key priorities for AusAID in developing an infrastructure support program to Sri Lanka. The Mission confirmed the development of local economic infrastructure in lagging regions as a priority area offering opportunities for AusAID support in partnerships with other multi-lateral donors and NGOs.

The LEIP is expected to have an impact on the improving the economic livelihood of the rural and regional poor in lagging regions of Sri Lanka, and help to close the gap between vulnerable groups and national level achievements of the MDGs. The following report outlines a concept for the local economic infrastructure program. There are three elements to the report: a Contextual Analysis, Proposed Activity Description, and Design, Implementation and Resource Implications.

2. Context Analysis

The following analysis provides context for matters to be considered in the preparation of a concept design for a proposed LEIP for conflict and disaster affected regions of Sri Lanka.

2.1 Strategic Context

Sri Lanka is a middle-income country with a GDP per capita of $US 5,057 (2010 PPP) and ranks 99 in the world in GDP per capita and 61 in terms of the world’s largest economies. The country is close to achieving the MDGs at a national level. The Human Development Index [1] ranks Sri Lanka as 91 (See Annex 1: Statistical and Indicator Data). The country ranks 64 in terms of global competitiveness [2], but is being held back by the slowness of economic and governance reforms, and the lack of basic infrastructure. Direct foreign Investment flows in 2009 was US$3.4.68 billion and has been rising rapidly since the cessation of the conflict [3].

The development of Sri Lanka has been impressive, despite the many setbacks caused by civil unrest and natural disaster. However, development has not been uniform across the country. The south-western part of Sri Lanka has enjoyed rapid economic growth and development while other regions of the country, especially those in the north and east, have had their economies and livelihoods devastated by civil war and natural disasters. Incomes per capita in the eastern and northern provinces are almost 50% less than that of the Western Province. Indicators on poverty, income, health, education and accessibility to economic infrastructures and services show significant disparities between the north, central, and eastern regions of the country and the Southwest [4, 5]. Rural areas are the most affected, with about 15.7% of the population living in poverty, compared to 6.7 % in urban settlements (World Bank 2011). Reducing the gap in regional disparities between regions is a high priority of the Government of Sri Lanka (GoSL) and official development assistance (ODA) agencies [6].

The lack of access to basic infrastructure and services, private sector investment and employment opportunities are primary causes for many regions lagging behind the development of the rest of the country. There remains an urgent need for interventions by government and ODAs to support the recovery efforts in the post conflict-affected and flood devastated areas of the country.

2.2 Government of Sri Lanka’s Development Priorities

The Government of Sri Lanka’s (GoSL) policy document Mahinda Chintana [7] outlines strategic directions for the recovery and development of the country over the next 5 years. The GoSL has signalled Infrastructure and private sector investment are the highest priorities for the investment and development in the country. Infrastructure is a priority area for current and future ODA assistance, with the scaling down of humanitarian activities. The GoSL has also given high priority to reconstruction in the north and eastern parts of the country following the cessation of hostilities in 2009 and the disastrous floods in January 2011. The government is also seeking to strengthen the capacity of local government and to support greater decentralization under Amendment 13 to the Constitution.

2.3 Australia’s Development Priorities in Sri Lanka

AusAID is a medium sized donor in Sri Lanka. Australia’s aid program spiked in terms of total ODA immediately following the disruption caused by the 2004 Tsunami and the end of the civil war in May 2009. Most of this increase was made up of humanitarian assistance. Only a gradual increase occurred in the long-term development assistance part of the program. ODA in 2009-10 was $79 million reducing to $52 million in 2010-11. It is estimated to be $43.5 million in the financial year 2011-12.

Looking forward a slight increase of total ODA can be expected during the next five years (A$45 - 65 m by 2015). The goal of AusAID’s Country Strategy for Sri Lanka (2011-2015) [8][8][8] is for 'more inclusive development for vulnerable people in lagging regions.' The regions that lag behind in terms of social and economic development include the Northern, Eastern, Central, Sabaragamuwa and Uva Provinces[2] . Severe pockets of poverty also exist in other Provinces [5]. The key sectoral priorities under the strategy include: (i) recovery of conflict-affected areas and rehabilitation of infrastructure; (ii) sustainable livelihoods and (iii) improved access to services, and social protection. AusAID’s Country Strategy [8] is aligned to the Government of Sri Lanka’s 'Mahinda Chintana - Vision for the Future' [7]. The GOSL is focused on overcoming regional imbalances through rural development, investment in economic infrastructure and better public service delivery.

2.4 Problem Analysis

The Northern region, because of the former conflict, remains one of the most impoverished areas in the country [9]. There are a number of reports and studies which show the severity of the problems facing the rehabilitation and development of the north [4, 9-12]. These reports refer to the growing need of ODA and government support resettlement, reconstruction and development assistance. In May 2011, nearly US$47 million (16.4%) had been received against the total requirement of US$289 million in the Joint Plan of Assistance for the Northern Province [10:2, 12, 13].

It is difficult to conceptualise the challenges and approaches necessary to resolve the complex development problems facing the northern and eastern regions of the country. Problem tree analysis is a useful technique to analyse the nature, cause and effect of complex development and post disaster problems. These problems can be depicted diagrammatically, and actions identified to help resolve them. The technique has proved useful in helping bilateral and multilateral agency partners to conceptualise and design aid projects.

Figure 1 shows a problem tree analysis prepared by the Mission Team. It provides the background context for a proposed local economic infrastructure project for lagging regions. The primary problem to be addressed by the project is that there is inadequate economic infrastructure to support and value-add to local production and supply chain systems to enhance the livelihoods of people living in lagging regions. Without the capacity to produce food, trade goods and services, and attract capital investment necessary to fund the means of production, the prospects for economic recovery and development in lagging regions will remain poor. There are many causes and effects which result from the lack of economic infrastructure, some of which are shown in the figure. These factors severely constrain the capacity of local communities in lagging regions to develop and improve the livelihoods of people living in them.